An Ode to Debt

[Sup y’all! Please enjoy this fun little ditty by resident blogger Lance who likes to stop by any time he thinks we need a quick kick in the ass ;) You might remember him from our Financial Confessional Series or perhaps his beautiful classifieds around Valentine’s Day. He’s got no shortage of opinions!]

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Ever have a friend or co-worker that emotionally drains you every single time they’re around? The second they come through that door you just cringe and pray they don’t come sit by you and start a conversation? Yet for some reason we continually put up with it?

That is debt.

Instead of cringing at the sight, the world has taught us that debt doesn’t really hurt us and that we should in fact embrace it like a kind friend who is helping us get what we deserve. Then later when the bill comes, that same kind friend surprise attacks you right in your financial back with a dull rusty knife.

What Debt Should Truly Look and Feel Like

Have you ever hit a skunk while driving on the road? I never have, but I’ve seen a few dead ones and I’ve smelled even more heading down the highway.

Debt is like hitting one of those skunks on the road, stopping your car, picking it up and licking it to see if it’s still alive, then putting it on your lap and taking it to work with you and then back home where you place it on your pillow and spoon with it all night long.

Debt is a stink that doesn’t go away, yet we’re so willing to incorporate it in to every aspect of our lives!

How can something that seems so normal… be so wrong?

How can something feel so good up front… then penalize us so harshly in the end?

Here’s a poem for you. Print it out and put it in to your wallet to remind you just how two-faced debt is:

“An Ode to Debt – How It Loves You and Hates You”

Debt is a neighbor that borrows your tools and never gives them back.

Debt is a soft comfortable blanket that makes you feel so good, only to discover when you get up you are covered in cat hair.

Debt is a friend that visits every day and consistently kicks you in the crotch as you just lay there smiling on the ground saying, “that’s okay, see you tomorrow.”

Debt invites you to go out to dinner on their dime but forgets their wallet.

Debt is your other neighbor who asks for help to move, and then when you show up has nothing packed or ready to go and expects you to do most of the work for them.

Debt is your boss that tells you you’re in line for a huge promotion and raise that you excitedly tell to your family about, only to see your boss leave the company the next week and the new boss give you the pink slip.

Debt is your sister-in-law who borrows your Redbox and says she’ll take it back before 9 pm and then doesn’t return it for 31 days.

Debt is your buddy who asks to drive your new car and then jumps the curb.

Debt is your fiancee who leaves you standing at the alter.

Debt is your child who decides to use your bathroom to take a dump right before you planned to take a nice long bath.

Debt is your air conditioner that breaks down on the first 100 degree day of the year.

Debt’s brother is the air conditioner repairman who says it’s going to cost way more than he originally quoted you, then tacks on five extra days while he “waits for the parts to arrive.”

Debt sleeps with your spouse, and on the way out of your house asks if you want to play golf the next day.

Tell me again, why do we love debt so much?

*********Lance is a former blogger who loves talking about money, but hates running a blog. We’ve given him a spot here anytime he has something juicy to say ;) You can find him on Twitter @Lance_Finance.

I was shocked a few months ago when I heard two of my friends talking about debt. This is how it started.

“I sold my rental house yesterday. It feels so good to finally be debt free. Well, except for my $50,000 student loan but I don’t count that because I could pay it off but have decided to keep just paying the minimums on it for the next twenty years since the interest rates are low and if I paid it off we wouldn’t have anything left in savings.”

As the conversation continued I honestly got the impression that he didn’t see the $50k as a debt but more like a way to invest in savings/stocks. And the person he was telling about it seemed to agree 100% with him. I wanted to interject with, “Really? You can’t be debt free if you have $50k worth of debt. Just because it’s payments are easy to make each month or you don’t mind keeping it around doesn’t change the fact that YOU’RE STILL IN DEBT!”

And when I was first out of college and accepting my first job offer my brother-in-law tried to convince me that the best financial move we could make would be to buy a house with as little money down as possible, 0%-5% was his preference. That way we could keep all of our money in stocks and not have it tied up in our house. This is same guy who left dental school $250k in debt then opened a practice with another recent grad and paid $1,000,000 for the office and who knows how much on all of the equipment that they had to fill it with. Thankfully things seemed to have worked out for him and he has had a lot of success with buying struggling practices and turning them around because he’s good at what he does. But will never turn to him for financial advice again after learning how much he loved being used by debt.

I mostly agree (debt = debt no matter how you look at it!), but I will say at least these guys are applying the $$$$ in other wealth-building ways vs just spending it all on nonsense, ya know? Lots of people prefer investing in real estate or stocks or other stuff while still having debt on the table, so I think it’s more about *being conscious* with what you’re doing and the plan behind it that’s the difference maker. Spending and having nothing to show for it vs spending and building up assets are two different things at least to me.

I just don’t have the same feelings against debt as many do in the personal finance community. Used correctly, it can be a great tool to use to grow your wealth. Sure you can’t treat it as free money, and still need to make sure the debt load is manageable. But if it’s low interest rate debt for something like a mortgage, I have no issues with it. Using leverage is a great way to grow your wealth. Without it, we’d all be renting for years before we could afford a home. Even student loan debt, if it’s a reasonable amount and a lower interest rate, I don’t have an issue with.

For me, I’d rather take that additional money that could go towards paying off debt and put it into investments. Take your home for instance. With interest rates having been at all time lows for years, the tax effected rate on your mortgage is likely no higher than 3%. Yes you lock in that return, but it’s essentially the same as allocating a lot of your money to bonds. Good if you’re in the wealth preservation phase, but not so good if you’re still in the accumulation phase.

My advice to best grow wealth, pay off high interest rate debt, but use low interest rates to your advantage and invest instead of paying down low interset rate debt.

Some debt can help accumulate wealth, but let me give you two scenarios with a couple of my former neighbors as well. Neighbor one just moved out because of student loans totaling over $200k that despite his job as a doctor he hasn’t been able to catch up on because of the proliferation of docs in his field. They had to sell their house because they weren’t making enough of a dent on their debt to ever catch up.

Neighbor two had a rental home and put some money in to a start up company. The start up came back asking for some more help and then the guys wife went in to the hospital for half a month then the rental needed some major repair work. Everything they had saved went into wealth building ventures and left them stuck when the bills came due; they are now looking to move.

Some folks get it and can use debt to build wealth but the vast majority of folks are some comfortable with debt and think it is no big deal. And that every deal will work out. The last 9 years should have been the biggest wealth opportunity of our life times yet on the other side debt accumulation grew just as fast.

Debt is buying a new (used) car and not getting it home to the garage in time before the quick developing hail storm starts dropping inch and a half ice bombs on it! …Yes, this happened to my mother-in-law…

lol. Great analogies. I can relate. We had this kind of relationship with debt for years:

Debt is like hitting one of those skunks on the road, stopping your car, picking it up and licking it to see if it’s still alive, then putting it on your lap and taking it to work with you and then back home where you place it on your pillow and spoon with it all night long.

Unfortunately with interest rates so low, many, many people (to include financial savvy folks) say pre-paying low interest debt is dumb. In some cases, the math shows you shouldn’t pay it off. I guess I will just continue to be dumb — paying down the 3.5% mortgage by an extra $2K every single month so I can kill this beast.

I’ve been on both sides of the table myself – sometimes focusing on debt killing only, while others to savings and investing even with debt – and I feel like the best route is the one that makes you most *comfortable*. And, really, EXCITED. Because I know at least for me, I don’t ever like sending my money places that don’t make me happy… And I think staying flexible with our plans def. helps us to hit the bigger picture ones faster for sure.

Based on my experiences, I can add a line…. debt is like blowing the engine (on a single engine airplane) over water/mountains, with nowhere make an emergency landing.

I do have ‘debt’, but I call it leverage, which is different than consumer debt. It is in the form of mortgages on a couple of rental properties, but they are class ‘A’ properties, so they are always rented and someone else is paying down the debt and putting equity into my pocket each month. I don’t mind that kind of debt, but I will say that I won’t buy any more properties with mortgages. Even as leverage for investing, I’m in a place in my life where I don’t want to take on any more debt at all.

Love the various comparisons & the cover image. I was thinking debt is the ex-girlfriend you hope you never run into again that was too good for you, but being jilted at the altar takes the cake in that department.

Like Grettman, we are prepaying our mortgage as well to become debt-free in 7 years instead of 15!

This might be called an “Ode to plastic” instead. Credit cards are the devil, as we all know, to the novice spender. I guess it’s kinda like proposing to your girlfriend, who secretly is condemned to an arranged marriage with someone else. Painful, but better smelling?

All types of consumer debt don’t add any value since they are accruing costs while producing no value. For those that run a business it’s similar to having a “negative rebill”. Something like Netflix is a rebill with actual content (value) associated with it but consumer debt is a rebill on something you’ve already done!

It’s a combination of “sunk cost” and “recurring payments”. The second one is music to any bank, business or government institution (hello student loans!)

Going to pull a quote from your article:

“Debt is your buddy who asks to drive your new car and then jumps the curb.” Think about it like this you’re actually doing a 3x leverage on the downside if you give your car to someone that is funded with debt (car payments are also plastic debt in our opinion because the car LOSES value).

1) downside of interest payments on the car
2) depreciation of the car
3) loss of control which lowers the value (your car is now worth less due to loss of control and him jumping the curb).

The way to getting rich is 1) control, 2) inflation working for you and 3) recurring payments.

Well look at that – the playas come to my side of town! Welcome, sir(s). Been enjoying y’alls blog over the past handful of months – I appreciate those who keep it real despite it possibly/probably pissing people off ;) Thanks for jumping into the convo here.

I hate debt, but sometimes I think debt has something good to offer for those who have because it teaches valuable lesson in becoming debt-free and having financial stability in the future, so I guess debt is a friend who can keep coming back to teach us lessons.

Over nearly a decade of paying off student loans, buying a very small first home with my wife, and recently buying a fixer-upper investment property, I have learned enough about my financial tendencies and desires to see that debt can be used constructively to build wealth in ways that excite me. I honestly have a hard time getting motivated to stash cash away in stocks and retirement plans, even though it makes fantastic sense on paper. I do it because I know I should, but it’s not exciting for me at this point in my life. What I’ve learned is that debt is a massive motivator for me. I simply want to slay it, so I’ll throw money at my primary and investment properties’ mortgages in ways that I would never otherwise consistently save or invest. That’s an issue with how I frame wealth-building in my mind, but it’s true. Combine this with the actual joy I get from renovating an old house on gorgeous land, and the sense of security I get knowing that these are real pieces of property I can live in and rent out, and somehow the equity I’m building with low-interest-rate mortgages start to seem like a pretty good deal. Even better, for someone like me who would otherwise drop cash on a fleet of Craigslist motorcycle projects, this type of investment makes it difficult to quickly convert the equity into some other form of (depreciating) asset. I think I’m building net worth more quickly this way because I’m highly motivated (wanting to slay the debt!) and enjoying the process (an excuse to get out of the cubicle and do some real work!), compared to having lots of liquidity that I would be easily tempted to spend in less constructive ways.

Hellll yeah!! no shame in that AT ALL. You know yourself damn well, and looks like you’re harnessing your energy and interests in the right way to get to the end game. People should be so lucky! A thousand ways to hit financial freedom and i’m all about going the routes that excite you along the way. So J. Money approved :)

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I, J. Money, only claim the thoughts from my head. I am not a banker, CPA, money manager or anything else of that sort. Please seek a professional for any "real" advice. More info: privacy & disclosure page